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CALIFORNIA CORPORATE & SECURITIES LAW

Here’s One Way To Recover Attorneys’ Fees Without Adopting A Fee Shifting Bylaw

With the ongoing hullabaloo concerning the legislative demise of fee shifting bylaw provisions under Delaware law, little attention has been paid to California law.  More importantly, no one seems to have noticed that California law already provides a mechanism for the collection of attorneys’ fees and other costs by the prevailing corporation or defendant in a derivative suit even in the absence of a fee shifting bylaw.  I find this collective silence all the more remarkable because Section 800 applies to both domestic and foreign corporations.  See Choice Of Law And Derivative Suits.

Section 800 provides a modicum of protection to the defendant in a derivative action by establishing a procedure by which either the corporation or an individual defendant may move the court to require the plaintiff, as a condition to maintaining the action, to supply a bond to secure reasonable expenses incurred by the defendant, including attorneys’ fees, in the event the defendant ultimately prevails.  The bond is for the benefit of the corporation and also any individual defendants who succeed in the motion.  Of course, there is a significant “but” and that is that the court may not require a bond in excess of $50,000 and that applies to in the aggregate.

In addition, one Court of Appeal has held that Section 800 is a bond or security statute and does not provide for recovery of attorneys’ fees and costs independent of the bond.  West Hills Farms, Inc. v. RCO AG Credit, Inc., 170 Cal. App. 4th 710 (2009).  This is not to say, however, that Section 800 prohibits the award of attorneys’ fees on some basis independent of the bond, such as a separate contract.  As the Court of Appeal noted: “If a prevailing defendant desires to recover attorney fees or costs independent of the bond, or beyond the amount of the bond, it would have to look to legal or statutory authority other than section 800.”  Id. at 719 n. 11.  The basic statute governing attorneys’ fees is Section 1021 of the Code of Civil Procedure which provides that except when attorneys’ fees are specifically provided for by statute, the measure and mode of compensation of attorneys is left to the parties’ agreement.

 

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